By Jason Levitis , Sabrina Corlette, and Claire O’Brien*
The Affordable Care Act (ACA) Marketplaces have seen unprecedented enrollment growth in recent years, reaching 21.4 million in 2024—nearly double the 2020 total. A key reason is enhancements to the premium tax credit (PTC) that were enacted in the American Rescue Plan Act (ARPA) of 2021 and extended in the Inflation Reduction Act (IRA) of 2022. The enhancements are now set to expire after 2025.
It has been widely reported that expiration jeopardizes health coverage for millions of Americans. But there has been less discussion of when the enhancements must be extended to avert these losses.
Given that Congress commonly extends tax rules just before or even after expiration, observers may believe that extending the enhancements to 2026 and beyond can wait until late 2025 or even 2026. But that is not the case. Congress’s real deadline to avert 2026 premium increases and coverage losses is in the spring of 2025. That’s because most consumers will make 2026 coverage decisions in the fall of 2025, with their options determined by steps that come months earlier: insurance rate-setting, eligibility system updates, and Marketplace communications with enrollees.
Background
ARPA included the largest improvements to premium affordability since the enactment of the ACA. The PTC as originally enacted was widely seen as having two key shortcomings: It was too small to make coverage affordable for some who were eligible; and eligibility ended in a cliff at 400 percent of the federal poverty line (or about $51,000 for a single person for 2021 coverage), leaving some middle-income people ineligible for assistance regardless of their out-of-pocket premium. The ARPA PTC enhancements addressed both issues, increasing PTC for everyone eligible and eliminating the cliff so that no one need pay more than 8.5 percent of income for a benchmark plan.
The enhancements have been widely credited with reducing consumer costs, expanding insurance, and increasing access to health care. The Urban Institute estimates that the enhanced PTCs will lead to 7.2 million more people receiving subsidized Marketplace coverage and 4.0 million fewer people being uninsured in 2025, as compared to if the original PTCs were still in place. The Centers for Medicare and Medicaid Services estimates that the enhancements save the average Marketplace enrollee more than $700 on premiums in 2024. These savings have translated to enrollment gains, with record-high Marketplace enrollment for three straight years from 2022 to 2024. Without an extension, virtually all of the 21.4 million Marketplace enrollees will see premiums rise.
The PTC enhancements have also contributed to insurer competition in the Marketplaces and more consumer choice. Between 2021, when ARPA’s enhanced subsidies were first implemented, and 2023, the number of insurers participating in the Marketplaces increased by more than 25 percent, according to an Urban Institute analysis of 43 rating regions in 28 states. Many insurers already participating in the Marketplaces expanded into new service areas. Greater competition helps keep premiums down, as insurers vie for price-sensitive consumers.
The ARPA provided the enhancements only for calendar years 2021 and 2022. In a July 2022 Forefront piece, we noted that the front-loaded timeline for rate-setting and reenrollment meant that averting coverage losses required Congress to act well before the expiration date. Congress did just that, passing the IRA in August 2022 to extend the enhancements through the end of 2025. Congress now faces a similar deadline.
Congress often can and does wait until after tax provisions have technically expired before extending them, without serious harms to taxpayers. For example, many of the tax cuts signed into law by President George W. Bush were scheduled to expire on January 1, 2012, and were extended in the American Taxpayer Relief Act of 2012, which was signed into law on January 2, 2013. Forms and instructions were quickly updated, allowing taxpayers to pay the lower rates during the 2013 filing season. But the structure of the PTC—which is paid to insurers monthly during the tax year to reduce consumers’ premiums—requires a much faster timeline.
A Timeline Of Harms Caused By Delaying Extension
The timeline for setting rates and renewing coverage means that the harms from delaying extension would start to accumulate in the spring of 2025 and then quickly grow.
Insurer Participation Decisions, Higher Rates Set By Spring 2025
The annual timeline for developing and finalizing individual market premiums starts well before the plan year begins. In the first quarter of the previous calendar year, insurers are making decisions about whether and where to offer Marketplace plans, and at what price. Most states require insurers to submit their proposed rates for the next year by mid-July (in some states, as early as May or June). Insurers must submit their final plan and rate changes to federal officials by mid-August for the federally run Marketplace. Once approved by regulators, these rates are soon locked in place by contracts with Marketplaces, operational steps to upload plans and rates to Marketplaces, enrollment contracts with consumers, and federal regulations prohibiting rates from changing more than once per year.
Unless Congress acts by the spring of 2025, insurers will submit their proposed 2026 rates assuming that the ARPA PTC enhancements expire on December 31, 2025, resulting in higher net premiums. Insurance company actuaries assume that those willing to pay higher net premiums are sicker, on average, than those who would drop coverage. Insurers will make Marketplace participation decisions and set their 2026 rates in anticipation of this smaller, sicker risk pool.
Some state regulators could require insurers to submit two sets of proposed rates—one assuming the enhancements are extended, one assuming they are not—to allow lower rates to be swapped later in 2025. But not all states would require this, and doing so would impose additional costs on insurers and insurance departments.
Higher premiums will mean higher costs for consumers ineligible for PTC, since those ineligible for PTC—unlike their counterparts who receive PTC—are not insulated from list premiums. They will also increase costs for federal taxpayers, as premium tax credits rise with increases in premiums.
On the other hand, if insurers are confident that the enhanced subsidies will be extended, they will be more likely to maintain, or even expand, their Marketplace service areas and submit lower proposed rates. The Urban Institute estimates that, in 2025, the 7.2 million increase in Marketplace enrollment stemming from the IRA’s enhanced PTCs will reduce insurer premium rates by 5 percent on average.
Rate Shock And Opt-Outs From Renewal Notices By September 2025
Late summer 2025 is the deadline to prevent Marketplaces from sending renewal notices to enrollees reflecting both higher premiums and smaller tax credits. Such notices could cause current enrollees to opt out of auto-reenrollment, greatly reducing the likelihood of keeping them covered even if the enhancements are later extended.
While the annual reenrollment process is often thought of as beginning with the open enrollment period on November 1, it begins sooner. In August or September, Marketplaces run calculations to determine each consumer’s default plan, expected PTC eligibility, and net premium—a process called “batch redetermination.” This requires first updating information technology (IT) systems’ PTC parameters and plan assignment algorithms. Then in September or October, Marketplaces send enrollees renewal notices with information about their eligibility for the coming year—a process that may be spread over days or weeks given vendor capacity and the importance of pacing call center demand.
Unless the enhancements are extended before these steps, notices would reflect both the higher rates for 2026 and the un-enhanced APTC. (In some states, these notices detail enrollees’ default plan, estimated PTC, and estimated premium. In other states, the notices are less specific, providing warnings if financial assistance is likely to decline.) Lower-income consumers with low or zero premiums may experience “rate shock” at net premiums returning to pre-ARPA levels. Middle-income consumers who are receiving financial help due to the enhancements will again have no protection against high premiums—a particular concern for older enrollees and those in high-price states such as Alaska, West Virginia, and Wyoming.
Telling consumers to expect premium increases could lead to substantial coverage losses, even if Congress later acts to extend the PTC expansion. Consumers may opt out of automatic reenrollment, which is responsible for a substantial share of renewals. Consumers may stop opening Marketplace mail or reading electronic communications—meaning they won’t find out if an extension is later enacted. They may remove the premium from their budget planning for the following year and commit those funds to other purposes. Others may lose trust in the Marketplace. Marketplaces could attempt to send new notices if the enhancements are extended during this process, but doing so would take substantial time and resources given the process described above.
Open Enrollment Subsidy Levels Locked In By Late October 2025
Unless an extension passes a week or more before the end of October, Marketplaces will be unable to update eligibility systems to reflect the expanded PTC when current enrollees and new customers come into shop at the start of open enrollment, which is generally November 1. Showing higher premiums could have several repercussions:
- Some consumers will choose not to enroll and go uninsured. Such attrition will be difficult to reverse if extension comes later. Current enrollees will lose the benefit of auto-reenrollment, and new customers may be impossible to reach because window shopping tools don’t generally collect contact information; both may tune out future communications.
- Some consumers will choose a plan they would not want with the PTC expansion extended. Since the enhancements made silver plans inexpensive or free for many consumers, bronze enrollment has fallen by more than 10 percent and more consumers chose silver or gold plans. If bronze enrollment climbs again, it would expose consumers to significantly higher deductibles and other out-of-pocket costs. Others might enroll in a short-term plan or similar coverage that lacks the ACA’s consumer protections, exposing them to preexisting condition exclusions and caps on coverage.
- Some consumers will still enroll but will be more likely to disenroll later due to higher out-of-pocket costs. Marketplaces may try to adjust enrollees’ APTC later, as many of them did when ARPA passed mid-year. But this may come too late and may not be possible for some enrollees.
These issues will continue to ensnare additional consumers even after an extension passes—until Marketplaces can update their systems. This will take time and may require taking down the Marketplace application during open enrollment for updating and testing, resulting in additional coverage losses and consumer confusion. Marketplaces will also lose the opportunity to do pre-open-enrollment marketing campaigns touting highly affordable premiums.
Operational Costs For Insurers, Insurance Departments, And Marketplaces
Modifying PTC rules late in the game would impose operational costs on insurers, which could be required to prepare and submit multiple rate filings, and on the insurance departments that would be tasked with reviewing those rates. The Marketplaces would also face additional costs, including last-minute re-programming of IT systems, revising communications materials, re-training customer support staff and navigators, sending corrected outreach notices, and booking additional advertising.
These costs could strain resources that cannot be readily scaled up, even if Congress were to provide implementation funding, as they did in the ARPA. Many Marketplaces have a fixed IT capacity, so adding new work means accomplishing less elsewhere. Last-minute changes also create more demand for call centers.
Conclusion
It will never be “too late” to extend the PTC enhancements—extending them will always expand coverage and save consumers money. But delaying enactment would begin to harm consumers sooner than many people realize—by the spring of 2025. Coverage losses in 2026 could not be fully reversed even if the PTC expansion were later restored. As a result, waiting to enact an extension would provide substantially less benefit than the exact same legislation passed earlier.
*Authors’ Note
Jason Levitis is a Senior Fellow and Claire O’Brien is a research analyst at the Urban Institute. Support for this article was provided by the Robert Wood Johnson Foundation. The views expressed do not necessarily reflect the views of the Foundation, the Urban Institute, or Georgetown University.
Jason Levitis, Sabrina Corlette, and Claire O’Brien, “Delays Extending Enhanced Marketplace Subsidies Would Raise Premiums and Reduce Coverage,” September 6, 2024, https://www.healthaffairs.org/content/forefront/delays-extending-enhanced-marketplace-subsidies-would-raise-premiums-and-reduce. Copyright © 2024 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.